Category Archives: Business/Economy

there is another opportunity cost of Bitcoins to bear in mind and that is related to its volatility.

Suppose you want to purchase a suit or a dress, you assess your other needs. You finally decide, yes, I need and want a new suit or dress and you purchase it by paying with dollars, or euros, or any other currency.

If you pay in your domestic currency, the exchange rate is of no concern. If you decide you want that gorgeous thing directly from an Italian tailor, well you pay in euros and you factor in the exchange rate. The exchange rate has usually no wild swings.

However, if you pay with Bitcoin you have to harbor second thoughts. It is the ludicrous volatility of this currency. How would you feel when you paid for your suit/dress and a week later the value of Bitcoin has gone up by 25%?

So with Bitcoin businesses run the risk that customers defer a purchase for two reasons: on the one hand to wait for a better rate and on the other the reluctance to see the payee benefit undeservedly.

Krugman’s post sums up the silliness of Bitcoin concisely. Is it evil? Well, that is a tough word for something that is inherently silly. Brad DeLong has updated his latest post on Bitcoin. Charlie Stross wants to see Bitcoin “die in a fire“, which probably is not needed. A much lower temperature will see to that.

But one point has been overlooked. Who is able to acquire this digital currency? Only people with a computer, or access to it. So that puts for example millions of Indians, Africans etc. out of any chance to get this, presumedly, safe store of value. Especially Indians are known not to trust their currency and eager to rather invest in gold. It is easy for them to buy gold, although the Indian government makes it tougher and more expansive.

That said, I do believe the evolution of money is headed to a Bitcoin type system with the ability to have whatever backing is desired by the market.

Well you already have a currency that has a backing desired by the market and that is the dollar and the market-desired backing is QE. Or if you live in the zone of doom, i.e. the eurozone, you have the euro with its QE and the OMT lurking on the horizon.

I just do not feel comfortable with a currency where I might buy a used car on eBay payed for with Bitcoins and 2 weeks later I have to realize that my Bitcoins, which are now with the seller, are worth 30% more. I would not run that risk with dollars, yen or rupees.

Besides, the market-desired backing I see with Bitcoin is that it is fueled by pure speculation and that can not be the basis of a stable currency.

Yet Greece still faces a €4.4 billion ($5.8 billion) funding gap next year, the IMF warns. It has given Greek officials a deadline of early October, when the draft 2014 budget goes to parliament, to find ways of covering the shortfall. The options are clear: unless tax revenues increase sharply during the rest of this year, “a credible 2014 budget would again need to be centred on painful expenditure cuts,” it says.

Bruegel looks at the trade adjustment in the euro area and Greece clearly sticks out, albeit for the wrong reasons.

Here is where it starts looking worrying as Greece seems to have completely decoupled from the euro zone.

Bruegel

In Greece, the price effect played a major role as rising export prices (+16%), offset the decrease in export volumes (-13%).

Bruegel

It can be noted that the drop in Greek imports is even larger (-44%) considering constant prices. On the other hand, Greece was the country with the fastest growing import prices (+21%).

Bruegel

While Germany is still fully involved in getting a government coalition off the ground and intent on sticking to strong austerity terms, it does not seem to work as intended.

This theory does not apply to Greece, which did not manage to substitue domestic demand by increasing exports. The underlying reason might be the absence of a strong tradeable sector. Therefore, wage adjustment does not necessarily help to support exports, since the economy is not able to shift towards an export orientated business model.

There is just too much money sloshing around in the EU and it comes from all the wrong places. The usual suspects are at it again.

About 80 percent of the monetary base of the Eurosystem are caused by credit or open market operations of the central banks of the six crisis countries (Greece, Italy, Portugal, Spain, Ireland, Cyprus), although these countries account for only a third of the economic strength of the euro area up.

How do they do this?

The rental of the printing press

A pictorial metaphor of electronic payment transactions that are behind the Target balances is so: The south prints the money he needs to buy in the north patrimonial goods and objects, as well as redeem old notes, and the central banks of the North shred the previously already spent money because it is no longer needed as a lubricant for domestic transactions. It is thus quasi awarded the (electronic) printing press from the north to the south, which establishes the target assets and liabilities.

At this point in our story we can almost feel the frustration and anger building inside our northern European readers. “Yet another way the euro system help siphon of my hard earned money to profligate southerners!”

But that is NOT the case! Excessive note issuance is (almost) inversely related to sovereign bond yields! The deeper a country has sunk into the euro-quagmire, the less the NCB has resorted to excessive note issuance!

Bawerk

Bawerk

This looks rather tame but back to HW Sinn as he dishes out more bad news:

The undercutting of the capital market with the printing press is now the main reason that the German banks and insurers can not earn risk-adjusted interest rates and more insurers are even forced to withdraw their interest guarantees.

Which in the end means that German banks would be just fine and that Germany’s hard workers will lose, yet again, on their life insurance nest egg.